THE WRONG WAY: CASUAL HELPERS
Many stable operations hire barn staff in the form of casual help to maintain and operate the barn, care for the horses, give riding lessons, and perform other tasks. Often, these workers are paid by the hour and in cash (i.e., under the table). This means the stable operation does not remit any income tax on behalf of the helper, Canada Pension Plan (CPP) or Employment Insurance (EI), nor does it provide the worker with any workers’ compensation coverage. While the use of casual help for barn staff may appear to provide an efficient source of labour in the short-term, the potential cost consequences in the long-term are significant, making this approach to the hiring of barn staff highly problematic.
For example, if on an audit by Revenue Canada the casual helper is labelled an “employee,” the stable operation will be found liable to the government for failing to withhold from this employee and remit to the government appropriate CPP and EI. Over a few years, the liability of the stable operation for these remittances can add up to thousands of dollars and can literally put the operation out of business.
If, after being let go, the casual helper is disgruntled, the stable operation may be faced with an employment standards claim for failing to provide reasonable notice or payment in lieu of notice for terminating the casual helper, as well as many other employment-related benefits. Depending on the age of the casual helper and the number of years he or she worked for the stable operation, the monetary value of such a claim and the costs of responding to it can quickly add up to a significant amount.
If the casual helper is injured while working on the job – a situation that is not uncommon when dealing with horses and farm machinery – the stable operation’s failure to obtain worker’s compensation coverage could result in substantial fines, penalties, and lawsuits. Moreover, the stable operation’s insurer may deny coverage for a worker’s accident, which means the operation would have to face the financial consequences of the casual helper’s injury alone.
THE RIGHT WAY: EMPLOYEES
One way for stable operations to avoid the above-noted problems and the ensuing financial consequences is to establish an employer-employee relationship with its barn staff. In an employeremployee relationship, an employer must:
– deduct income tax, CPP, and EI premiums from amounts paid to employees;
– remit these deductions, along with the employer’s share of CPP and EI premiums, to Revenue Canada; and
– report the employee’s income and deductions on the appropriate information return by the end of February the following year.
Additionally, employers must conduct their relationship with their employees in accordance with applicable federal and provincial employment standards legislation, which includes the following:
– payment of vacation pay and overtime pay;
– payment of statutory holidays;
– notice of termination of employment or pay in lieu of notice of termination; and
– compliance with Human Rights Codes.
If an employer wishes to terminate an employee, that employer is required to pay termination pay to the employee in an amount that varies depending on the number of years of service of the employee and other factors.
Although this approach comes with many obligations and shortterm costs for the employer, it provides the best protection from future liabilities that may arise from an audit or a disgruntled exemployee. Consequently, this approach can ultimately save a stable operation thousands of dollars in the long-term, and keep it in business.
THE RIGHT WAY: INDEPENDENT CONTRACTORS
Another way for stable operations to avoid problems is to execute a contract with its barn staff wherein the stable operation is the principal and each worker is an independent contractor. Under this approach, the stable operation avoids most of the obligations required by the employer-employee relationship.
For example, the obligation to deduct and remit income tax, CPP, and EI from a worker’s remuneration does not exist for an independent contractor. Instead, the principal will pay to the independent contractor the full value of his or her services plus applicable taxes (HST). The responsibility is solely on the independent contractor to then remit his or her taxes, CPP, health taxes, and other remittances to the government. Additionally, a principal can dismiss an independent contractor with little or no notice of termination as the relationship is governed solely by the contract between the two parties.
The obligations and costs imposed on a stable operation through its use of independent contractors are far less onerous than in an employer-employee relationship. As such, businesses today do use independent contractors at an increasing rate over employees.
The problem is that the distinction between an independent contractor and an employee is often unclear. Stable operations, may execute a contract with a worker that states clearly that the worker is an independent contractor. On an audit, Revenue Canada will look at the contract as only one aspect of the relationship. Other factors may lead Revenue Canada to conclude that the worker is really an employee and make the employer liable for all of the remittances that didn’t get paid over the course of the relationship. A disgruntled contractor can go to a lawyer and, with the right set of facts, make a claim against the stable for wrongful dismissal as an employee.
When considering whether a worker is an employee or an independent contractor, consider the following:
1. How much control do you wish to have over the worker? Is the worker free to work for other people? Can they subcontract work to another individual? If you wish to exert a high level of control over how and when work is performed, this is evidence of an employer-employee relationship.
2. Will you provide tools and equipment for the completion of the job? Where the payer supplies the tools and incurs the cost of repairs, the courts will consider this a factor that points toward creation of an employer-employee relationship.
3. Who absorbs the financial risk associated with the services? Generally, employees do not share in the profits or losses of a business.
4. How important are the services to your business? If an individual’s work is an integral part of the business operations, that individual is an employee. If his work is only accessory to the business, the worker is an independent contractor.
As a stable operator or business owner, you are left to apply these very general tests to the relationship between you and your workers. In each individual worker’s case, you must decide whether he or she is an independent contractor or an employee. As the business owner, it is cheaper for you and the obligations are far less onerous if the worker is an independent contractor. Of course, if the federal government comes knocking at your door a few years later and decides, on its own review of the worker’s situation, that the worker is an employee, you could be paying thousands of dollars in outstanding employee remittances, penalties, and interest.
The best advice I can give you is to have the worker sign a written contract as part of the job offer. This written contract will help to clarify whether the worker is an independent contractor or an employee and can protect you from claims for significant termination pay and other employee demands. Pay attention to the tests listed above and err on the side of caution. Let a lawyer review the contract and put in wording to protect you and prevent claims from disgruntled workers. This could be the best cost-saving measure you employ.
THE RIGHT WAY: WORKERS’ COMPENSATION
If a worker is injured on the job, the costs could be significant if the worker is looking to the stable and its insurer for compensation. The best form of protection available to stable operations is a provincially-administered workers’ compensation program. In Ontario, the Workplace Safety and Insurance Act, 1997, establishes such a program, the purpose of which is to accomplish the following:
1. facilitate the re-entry into the labour market of workers and spouses of deceased workers; and
2. provide compensation and other benefits to workers and to the survivors of deceased workers.
Under the Act, individual employers are classified according to a scheme based solely on the employer’s business activity. This scheme determines whether the employer is required to register for workers’ compensation since the coverage of its employees is compulsory, or whether it should apply for coverage since its employees are not required to be covered.
Stable operations that operate horseback facilities, horseback riding schools, boarding stables, and those engaged in horse training (including race horse training) are not required to obtain workers’ compensation coverage. Such operations must therefore apply for coverage if they want to cover their employees. By comparison, stable operations that operate farms engaged in the breeding and raising of horses and other equines are required to register for such coverage, pursuant to the Act, since the coverage of their employees is mandatory.
By obtaining workers’ compensation coverage, employers are protected from the potential lawsuits of their injured workers since the benefits available under the Act replace the worker’s right to sue the employer for similar benefits. These benefits cover the financial loss of the worker’s lost earnings, as well as his or her health care and return-to-work expenses. To avoid the financial burden that may arise from a workplace injury, stable operations should consider workers’ compensation coverage for their barn staff, whether they are required to do so or not.
Catherine E. Willson is a partner in the law firm Willson Lewis LLP, (www.willsonlewis.com) in Toronto, ON, with experienced counsel practising in civil litigation, employment, construction, family, tax, and equine law. The information in this article deals with complex matters and may not apply to particular facts and circumstances. The information reflects laws and practices that are subject to change. For these reasons, this information should not be relied on as a substitute for specialized professional advice in connection with any particular matter.